Wyoming MacHinery Co. v. United States Fidelity & Guaranty Co.

614 P.2d 716, 1980 Wyo. LEXIS 292

• Court: Wyoming Supreme Court
• Decided: July 24, 1980
• Docket: 5234
• Status: Published

Opinions

RAPER, Chief Justice.

The sole question presented in this appeal is whether a contractor’s bond written by the appellee, United States Fidelity and Guaranty Company, written to Medicine Bow Coal Company, is available to satisfy a claim made by the appellant, Wyoming Machinery Company, as a third-party beneficiary to the bond, when the principal contractor, H. L. Gracik Construction, Inc. (Gracik), became financially unable to pay for equipment rental, labor, and materials supplied by appellant to Gracik.

The district court in a brief, conclusory letter decision found that the bond and contract in question could not be read to afford protection to appellant. Both the parties had moved for summary judgment. The trial judge entered summary judgment in favor of appellee.

We will affirm.

On January 20, 1975, Gracik entered into a contract to do an overburden stripping project at Medicine Bow Mine in Carbon County. One of the terms of that contract was that the owner of the mine could require Gracik to obtain a performance and payment bond. Pursuant to that provision, an amendment to the contract was entered into, also on January 20, 1975, which provided in pertinent part:

“2. Pursuant to Section 400.19 of the General Conditions of the Contract, Contractor agrees to obtain an appropriate performance and payment bond in the amount of $350,000.00, subject to reimbursement by Owner of the actual cost of bond premium. Said bond shall be obtained within ten (10) days of the date hereof, unless such time is extended by Owner in its sole discretion.”

Gracik then obtained a bond through a Denver, Colorado, agent, Evan E. Moody, which bond provided:

“WHEREAS, The said Principal has executed and entered into a certain contract with the said Obligee dated

“January 20, 1975

“Contract scrapper stripping project at Medicine Bow Mine in Carbon County, Wyoming

“in said contract described; which contract is hereto annexed.

“NOW, THEREFORE, THE CONDITION OF THIS OBLIGATION IS SUCH, That if the said Principal shall well and truly perform and fulfill all and every the covenants, conditions, stipulations and agreements in said contract mentioned to be performed and fulfilled, and shall keep the said Obligee harmless and indemnified from and against all and every claim, demand, judgment, lien, cost and fee of every description incurred in suits or otherwise against the said Obligee, growing out of or incurred in, the prosecution of said work according to the terms of the said contract, and shall repay to the said Obligee all sums of money which the said Obligee may pay to other persons on account of work and labor done or materials furnished on or for said contract, and if the said Principal shall pay to the said Obligee all damages or forfeitures which may be sustained by reason of the non-performance or mal-performance on the part of the said Principal of any of the covenants, conditions, stipulations and agreements of said contract, then this obligation shall be void; otherwise the same shall remain in full force and virtue.”

The contract, which the bond annexes had the following pertinent provisions:

400.17 Liens. The Contractor may not make, file or maintain or suffer or permit to be filed a mechanic’s or other lien or claim of any kind or character whatsoever against any building or other structure to which this Contract relates, the additions, improvements, alterations or repairs made thereon, the ground on which said building or other structure is situated or any other property or property interested owned, held, occupied, or otherwise possessed by Owner, for or on account of any labor, materials, fixtures, tools, machinery, equipment, or any other things furnished, of any other work done or performance given under, arising out of or in any manner connected with this Contract, or any agreement supplemental thereto, and, the Contractor on behalf of its subcontractors, materialmen and all other persons entitled to such a lien or claim, hereby expressly waives and relinquishes any and all rights which Contractor or such persons now have or may hereafter acquire, to file or maintain any mechanic’s or other lien or claim of any other kind or character whatsoever against the aforesaid property or property interests; and, the Contractor further agrees that this provision waiving the right of liens shall be an independent covenant, and that Contractor shall inform in writing all persons contracting to do work hereunder of this waiver and shall include a provision to that effect in all contracts made hereunder.

“The Contractor shall save and hold harmless Owner from and against any and all loss and expense due to liens or claims of any kind or character whatsoever that may be filed against Owner’s property arising out of or in any manner connected with the performance of this Contract.

“400.18 Payments. The Owner agrees to pay the Contractor monthly at the rates herein provided, upon receipt of bill approved by Owner, with waivers of claims for mechanic’s liens by all parties who furnished labor, material, or other services included in said bill, showing work done by Contractor during the preceding month. The Owner shall retain from each bill, ten percent (10%) of the monthly bill, until final approval and acceptance of the work by Owner. At the time of final payment, the Contractor agrees to furnish Owner with waivers of all claims for mechanic’s liens, and showing that all amounts for labor, equipment, and subcontractors furnished by the Contractor have been paid in full.” (Emphasis supplied.)

The appellant asserts that the district court erred in determining that the surety bond and the contract, when construed collectively, were not intended to provide coverage for the material and rental equipment furnished by the appellant for use in the overburden stripping project. Further, appellant contends that the surety bond and the contract must be construed collectively because the bond annexes the contract. This then leads the appellant to pose the vital questions which are the essence of this case. (1) If the surety bond is conditioned on the performance of the construction contract, may subcontractors, laborers and ma-terialmen rely upon the underlying contract as the basis for filing suit on the surety bond as third-party beneficiaries? (2) May a subcontractor, laborer or materialman recover on a surety bond, which a contractor is obligated to obtain by the terms of his contract, where the bond is conditioned on the performance of the contract by the contractor and the construction contract requires the contractor to pay and satisfy the claims of subcontractors, laborers and mate-rialmen? Finally, appellant asserts that if the courts determine that pertinent provisions of the bond and contract are ambiguous, then summary judgment for the appel-lee is inappropriate because such ambiguity constitutes a genuine issue of material fact.

In response to these assertions, appellee counters that: (1) contracts should not be construed as having been made for the benefit of third parties unless it clearly appears that it was the intention of the parties to the contract to confer a direct benefit on such third parties; (2) any third-party beneficiaries’ rights which might arise in situations such as that at issue in this case must be determined by the application of the ordinary and accepted principles relating to a third-party-beneficiary theory, and such things as agreeing to indemnify the owner, furnishing material and labor, furnishing lien waivers or providing for an appropriate performance and payment bond do not constitute a clear intent to directly benefit a third party; (3) a reasonable construction of the bond and contract discloses that the contractor promised only to complete the project free of liens and to indemnify the owner from loss or claims made by laborers or suppliers, and cannot reasonably be read to express a clear promise to make direct payments to laborers and suppliers; and (4) there is no genuine issue of material fact and the bond and contract are not ambiguous in their language, hence summary judgment for appellee was appropriate.

In construing the language of a contract of suretyship, the same rules apply that control in the construction of other contracts. The true intent and meaning of the contract is to be ascertained or determined according to the rules applicable to contracts generally. Snow v. Duxstad, 1915, 23 Wyo. 82, 120, 147 P. 174. It has long been a part of this State’s jurisprudence that corporations organized to make such bonds or undertakings for profit are not favorites of the law and that their contracts should be construed most strongly in favor of the obligee. United States Fidelity & Guaranty Co. v. Parker, 1912, 20 Wyo. 29, 51, 121 P. 531; 32 Cyc. 306-307; 17 Am.Jur.2d, Contractors’ Bonds § 3, pp. 193-194.

The bond in this case must be construed in conjunction with and in the light of the contract with which it was executed, since the contract is incorporated into the bond. Dealers Electrical Supply v. United States Fidelity and Guaranty Company, 1977, 199 Neb. 269, 258 N.W.2d 131, 134; 17 Am.Jur.2d, Contractors’ Bonds § 4, p. 194. About this there is really no quarrel. The real question is whether, when the bond and contract are construed together, there is an intention that third parties be benefited by its protection. The appellant is, of course, a stranger to this bond and contract, and any benefit he can derive from it must be based on some theory of third-party beneficiary.

The bond at issue in this case is conditioned on the contractor keeping the owner harmless and indemnified from loss, but it is also conditioned on the contractor performing and fulfilling all the conditions of the contract. The contract provision ¶¶ 400.17 and 400.18, supra, require that the contractor take care of all claims “ * * * for or on account of any labor, materials, fixtures, tools, machinery, equipment, or any other things furnished * * *.” It also provides that the contractor agrees to obtain lien waivers showing that all amounts for labor, equipment, and subcontractors have been paid in full. We hold this language is not enough to create a liability by the appellant to the appellee but was designed only to protect the owner.

There is no question that a promise may be made to one person for the benefit of another and a third-party beneficiary may enforce his rights under a contract, although not a party to nor specifically mentioned in the contract; but there is more to it than that. An outsider claiming the right to sue must show that it was intended for his direct benefit. Otherwise he may be only an incidental beneficiary because the compelling provisions of a contract require that his claims be satisfied in order to protect another. However, an incidental beneficiary acquires no right of action against the promisor or promisee. Peters Grazing Assoc. v. Legerski, Wyo.1975, 544 P.2d 449; Graham and Hill v. Davis Oil Company, Wyo.1971, 486 P.2d 240.

There is not one word in the contract of suretyship which demonstrates any intention of either appellee as promisor or the mining company as promisee in the contract language that mechanics or mate-rialmen shall have any claim against either. This is consistent with our frequently stated rule that the supreme court will not rewrite clear contracts. Overcast v. Baldwin, Wyo.1976, 544 P.2d 464 and cases there cited. Nor will this court rewrite contracts under the guise of interpretation. Quin Blair Enterprises, Inc. v. Julien Construction Co., Wyo.1979, 597 P.2d 945, 951. The owner coal company’s only concern was that it receive a lien-free job. We discern no language guaranteeing payment of laborers and materialmen.

Section 165 of the Restatement of the Law of Security states a basic rule which appears in many of the cases decided on the subject:

“Where a surety for a contractor on a construction contract agrees in terms with the owner that the contractor will pay for labor and materiais, or guarantees to the owner the promise of the contractor to pay for labor and materials, those furnishing labor or materials have a right against the surety as third party beneficiaries of the surety’s contract, unless the surety’s contract in terms disclaims liability to such persons.”

However, the Restatement, supra, by § 166 states the rule which prevents construing guarantee against lien language as a promise of the surety to pay laborers and materi-almen:

“Where a surety guarantees the performance of a contract by a contractor who does not promise the owner to pay those furnishing labor or materials but agrees to complete the work free of liens or to furnish labor and materials, laborers and materialmen have no rights against the surety.”

As set out in the text of the comment to the black letter rule, § 166:

“a. Rationale. * * * In contrast to the rule stated in § 165 where there was a promise to pay laborers and materi-almen, if the surety has only guaranteed the contractor’s promise to complete a construction project free of liens or to furnish labor and materials, there is no right in laborers or materialmen because there is no indicated purpose to benefit them. Where the surety has only guaranteed that the contractor will carry out a promise to deliver a building free of liens, neither the surety nor the contractor has necessarily promised to pay laborers or materialmen. * * * ”

In other words, even if such liens could be established, the construction, whatever it may be, might be freed from liens in other ways than by payment.

We see no promise to pay laborers or materialmen. We see only a promise to present a completed job free of liens. Neither the contract for construction which has become a part of the surety’s agreement nor the bond provided by the surety guarantee anything other than a lien-free project, thus falling under § 166 of the Restatement, supra. Smith-Kelly Supply Co. v. General Construction Corp., S.D.Ala. 1975, 399 F.Supp. 184, 185, and cases there cited, aff’d without opinion, 519 F.2d 1087, 5th Cir. 1975; United States for the Use of James E. Simon Co. v. Ardelt-Horn Construction Co., D.Neb.1970, 316 F.Supp. 254, 260, 261, aff’d 446 F.2d 820, 8th Cir. 1971; Western Casualty & Surety Co. v. Stribling Bros. Machinery Co., 1962, 244 Miss. 12, 139 So.2d 838, 841; Drano-Doyle Co. v. Royal Indemnity, 1952, 372 Pa. 64, 92 A.2d 554; Johns-Manville Sales Corp. v. Reliance Ins. Co., 9th Cir. 1969, 410 F.2d 277.

There is no ambiguity in this bond and annexed contract which would create a material issue of fact requiring a trial and factfinding. If the language of a contract is plain and unequivocal, that language is controlling and the construction of its provisions is for the court as a matter of law. Hollabaugh v. Kolbet, Wyo.1980, 604 P.2d 1359, 1361 (and cases cited therein). While the language used in this contract may not have been crystal clear in its expression and syntax, it does not thereby become one which is capable of being understood in more ways than one, nor does its poor use of language cause a double meaning to be present. Hollabaugh v. Kolbet, supra, 604 P.2d at 1361. Because the contract is not ambiguous, at least insofar as the question at hand is concerned, the matter is one appropriate for summary judgment.

Affirmed.